NetFlix 2008 Annual Report Download - page 59

NETFLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Amortization of Intangible Assets
Intangible assets are carried at cost less accumulated amortization. The Company amortizes the intangible
assets with finite lives using the straight-line method over the estimated economic lives of the assets, ranging
from approximately 10 years to 14 years. Intangible assets are included as part of other assets in the consolidated
balance sheets.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation. Depreciation is calculated using
the straight-line method over the shorter of the estimated useful lives of the respective assets, generally up to 30
years, or the lease term for leasehold improvements, if applicable. Leased buildings are capitalized and included
in property and equipment when the Company had been involved in the construction and did not meet the “sale-
leaseback” criteria under SFAS No. 98. See Note 3 for further discussion.
Impairment of Long-Lived Assets
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-
lived assets such as content library, property and equipment and intangible assets subject to amortization, are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a
comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be
generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of an asset group exceeds fair
value of the asset group. The Company evaluated its long-lived assets, and impairment charges were not material
for any of the years presented.
Capitalized Software Costs
The Company accounts for software development costs which consist of costs to develop software programs
to be used solely to meet the Company’s internal needs in accordance with Statement of Position (“SOP”)
No. 98-1, Accounting for Costs of Computer Software Developed or Obtained for Internal Use. Costs incurred
during the application development stage for software programs to be used solely to meet our internal needs are
capitalized. Capitalized software costs are included in property and equipment, net and are amortized over the
estimated useful life of the software, generally up to three years. The net book value of capitalized software costs
is not significant as of December 31, 2008 and 2007.
Revenue Recognition
Subscription revenues are recognized ratably over each subscriber’s monthly subscription period. Refunds
to subscribers are recorded as a reduction of revenues. Revenues from sales of advertising are recognized upon
completion of the campaign. Revenues are presented net of the taxes that are collected from customers and
remitted to governmental authorities. Deferred revenue consists of subscriptions revenues billed to subscribers
that have not been recognized and gift subscriptions that have not been redeemed.
Cost of Revenues
Subscription. Cost of subscription revenues consists of postage and packaging expenses related to
shipping DVDs to subscribers, as well as content related expenses incurred in obtaining titles such as
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